While Representative Paul Ryan’s (R-WI) most recent Medicare premium support proposal will be hotly debated during this charged political season, the more durable issue is what it means for the real debate on Medicare that looms after the election. Regardless of who wins this November, the country is faced with a massive deficit, driven in large part by our entitlement programs. Making Medicare more efficient and less costly will be front and center in a 2013 deficit reduction effort. Representative Ryan’s contribution to this debate—a proposal that would enact sweeping changes to the Medicare program and how seniors receive their benefits —raises two important questions.
What are the roles of exchanges and private plans in putting Medicare on a more sustainable fiscal path? The Ryan premium support plan starts from the premise that exchanges can offer Medicare an infrastructure to create a competitive level playing field for private plans. In the Ryan plan, insurers would compete in a regulated Medicare exchange, not unlike the health insurance exchanges established in the Affordable Care Act (ACA) for individuals to purchase private coverage, or to the construct used for Medicare Part D.
The Ryan plan relies on private insurers to drive care integration to produce quality improvements and savings in the Medicare program. Specifically, the plan would require insurers to competitively bid in a Medicare exchange, offer benefit packages that are at least actuarially equivalent to traditional fee-for-service (FFS), and deliver care for a risk-adjusted, capitated payment. If plans are able to drive enrollment into integrated models that offer lower premiums and superior care or benefits to FFS, then, over time, Ryan presumes this model will result in cost savings for the Medicare program.
While the ongoing role of the Medicare FFS program in the Ryan premium support proposal is unclear, most agree that we need to make changes to Medicare FFS that drive value and eliminate silos throughout the program. In this vein, the Ryan plan represents some level of consensus that the type of payment and delivery system reforms included in the ACA are critical for Medicare. The ACA focuses heavily on testing new payment and delivery system reforms through new programs, pilots, and demonstrations, primarily through the Center for Medicare and Medicaid Innovation (CMMI). The Ryan framework leaves room to build upon these efforts.
What level of savings can be reasonably achieved in the Medicare program without compromising beneficiaries’ access to quality care, and how should these savings be realized? Both sides of the political aisle agree that deficit reduction needs to occur. Representative Ryan’s prior effort was largely criticized for the depth of the cuts proposed in Medicare. But this year, his plan trims savings close to the level proposed in President Obama’s budget. Ryan’s Fiscal Year (FY) 2013 budget proposal projected 6.4 trillion in Medicare outlays over FY2013-FY2022 – approximately $200 billion below the levels in the President’s FY2013 budget proposal. This emerging consensus on the level of cuts is significant politically as it will serve as a new benchmark in the discussion.
Of course, the aspect of the budget discussion where significant differences remain is how to best achieve savings — via premium support as in Representative Ryan’s budget or the proposals in the President’s budget to reduce pharmaceutical spending and provider payments.
Both Representative Ryan and President Obama’s budget proposals recognize the need to reform Medicare if we are to make any meaningful progress in deficit reduction. While any changes to Medicare will eventually impact beneficiaries, structural changes to the program, such as premium support, could impact beneficiaries more directly through new cost sharing structures and insurance plans. As the candidates start to vilify one another during the election over Medicare, healthcare organizations contemplating strategies should remember that the emerging consensus on the need for care integration, a role for private sector healthcare organizations in exchanges, and deficit reduction are likely to be the durable elements of this discussion.